Within the Texas Administrative Code, the Texas State Board of Public Accountancy’s Rules of Professional Conduct are clearly laid out within five subchapters. CPA applicants in the state are required to take a four-hour course covering the Code of Professional Conduct, and then take an open book ethics exam covering the material in the Code. Texas CPAs are also required to take a four-hour, Texas-specific ethics course every two years as part of their Continuing Professional Education.
Like all states, Texas takes the ethics of it’s accounting professionals seriously and goes to great lengths to ensure licensed CPAs are staying compliant during the course of their careers. Below, we’ll briefly cover each subchapter of the Code of Professional Conduct and point out the basics of each. If you are a Texas CPA, now may be a great time to check out courses that will take a deep dive into the Code and help you earn your four CPE ethics hours.
The Five Subchapters of the Rules of Professional Conduct and What’s Important in Each
- Subchapter A
This is the introduction to the Code of Conduct and covers the general principles within the Code, the definitions of items found in the code, and how the rules are applied to Texas CPAs. Becoming a CPA requires a high degree of skill, as well as a high degree of integrity. The CPA profession relies heavily on the public trust and the introduction reviews how maintaining that trust is crucial to the profession, and how discreditable acts negatively impact the public’s trust in the profession. It also covers the professional services the Code is applicable to: accounting, auditing and other assurance services, taxation, financial advisory services, litigation support, internal auditing, forensic accounting, and management advice and consultation.
- Subchapter B
Auditing standards, accounting principles, other professional standards, and reporting standards are covered in this section.
- Auditing standards – An auditor will only allow his or her name to be associated with financial statements if he or she has been compliant with Generally Accepted Auditing Standards (GAAS).
- Accounting Principles – Financial statements should not be issued asserting that they are in conformity with Generally Accepted Accounting Principles (GAAP) if they are not if that nonconformity leads to a material difference in the financial statements.
- Other Professional Standards – This section presents standards associated with consulting services, accounting and review services, other attest services, financial advisory services, and tax services. Those working in these areas will conform to AICPA issued standards and other professional standards issued by professional entities with similar authority (i.e. IFRS issued by the IASB).
- Reporting Standards – CPAs in the state working in public accountancy have to comply with the Statement on Standards for Accounting and Review Services (SSARS) when transmitting financial statements to clients or third parties.
- Subchapter C
The 9 rules associated with the Code of Professional Conduct are presented in this subsection:
- Independence – Those working in accounting must remain independent in fact and appearance, and conform with the AICPAs Code of Professional Conduct, as well as with any applicable outside professional standards (i.e. the SEC).
- Receipt of Commission Compensation or Other Benefit – CPAs will not refer clients to products or services for compensation or benefit.
- Contingency Fees – CPAs should not perform any work for a contingent fee. A contingent fee means the fee you receive is dependent on achieving a certain outcome. An example would be receiving a $1,000 in payment from your tax client only if you get them a tax refund for the year.
- Integrity and Objectivity – Those in the profession should be consistently working to maintain integrity and objectivity. Integrity means being honest and objectivity means steering clear of conflicts of interest.
- Competence – Accounting professionals should only perform work where they have a reasonable level of competence. If a request or service is outside of their competency level, an accounting professional should not take on the work and refer the client to someone else who can provide competent services.
- Confidential Client Communications – An accounting professional should not disclose information regarding a client or services provided to a client except via permission of the client or authorized representatives of the client. There are several exceptions to this rule which can be explored more in the Rules of Professional Conduct.
- Records and Work Papers – Records should be supplied to a current or previous client on request within a reasonable amount of time. Work papers are the property of the person who developed them and do not have to be supplied to the client.
- Acting through Others – An accounting professional will not request actions be carried out on his or her behalf if those actions would place the accounting professional in violation of the rules of conduct.
- Withdrawal or Resignation – If a professional cannot complete an engagement while simultaneously maintaining these rules of professional conduct, he or she must withdraw from the engagement or resign from the employment assignment.
- Subchapter D
This section covers the accounting profession and CPAs responsibilities to the public. CPAs should only use that title if they hold a valid license, and should not misrepresent themselves as CPAs if they are not. Firms also cannot represent themselves as public accounting or CPA firms unless they hold a valid firm license issued by the board. CPAs and firms should not misrepresent themselves through their names, and names should never be deceptive or confusing to the public. CPAs can only practice public accountancy via a legally recognized business entity that provides professional accounting services. Lastly, the Texas State Board of Public Accountancy should be notified of any alleged violations of the Rules of Professional Conduct.
- Subchapter E
The definition of discreditable acts, how they should be reported, how CPAs must respond to the board, and continuing education requirements can be found in this section. Below are the highlights:
- Discreditable acts include fraud, gross negligence, fiscal dishonestly, or misrepresentation, among other acts.
- Reportable events include felonies, crimes of moral turpitude, crimes involving fraud, crimes involving alcohol or controlled substance abuse, crimes related to physical injury or threats to physical injury, or crimes related to the function of a CPA. These events must be reported to the board within 30 days of the licensee’s knowledge of the events.
- If a person accuses another person of violating the rules, he or she will assist the board in investigating or prosecuting the violator.
- A written response is required within 30 days of a board requested response.
- Texas CPA license holders shall complete 120 hours of continuing professional education during their three year license period. If an individual’s license is suspended for three years in a row due to failure to complete their continuing education requirements, their license can be revoked.
While the above is meant to give you a general overview of the Texas State Board of Accountancy’s Rules of Professional Conduct, it is by no means comprehensive. If you are a Texas CPA, we recommend taking a review course to help you attain your four hours of required ethics continuing education, as well as review the Code in its entirety.